Econ Assignment

The Federal Reserve uses several tools to stabilize the economy; the tools that the Federal Reserve uses relate to the monetary policy. These tools include the discount rate, open market operations, as well as reserve requirements. The Federal Reserve System has a Board of Governors, which implements the reserve requirements, as well as the discount rate. Open market operations can only be instituted by the Federal Open Market Committee. In order to stabilize the United States economy, the Federal Reserve employs these tools to determine both the supply and demand of balances held by depository institutions. The rates of the federal funds have to be altered in order to ensure that the economy is stabilized. The Federal Reserve has to institute changes in the rates of the federal funds. As a result, the interest rates and the foreign exchange rates will be altered, thus leading to a stabilization of the economy. The changes in the interest rates will lead to changes in the rates of employment, and changes in the prices of services and goods.

Since the beginning of the recession, the Fed has taken several measures in order to stabilize the economy of the United States. One of the measures that can be used to stabilize the economy includes quantitative easing, which entails the reduction in the interest rates. The reduction in the interest rates helps in stabilizing the economy since it encourages lending, as well as spending. Quantitative easing can also take the form of securities, which tend to be backed by mortgages. The buying of Treasury bills is also a crucial step towards ensuring that there is stabilization of the economy. The economy can also be stabilized by ensuring that bonds are not purchased using the taxpayers' money. When buying bonds, the money supply should be expanded instead of using taxpayers' money.